Archive for April 3, 2012

The nation is watching our Supreme Court entertain arguments over the legality of the Obama health-care plan, which in 2014 will mandate that all Americans have health insurance or pay a penalty. So we wanted to highlight some health-care exchange-traded funds (ETFs) with stocks likely to be affected by this bill, the final Supreme Court decision, and even the presidential election.

If the Supreme Court allows Obama’s mandate to stand, these health-care companies and their corresponding ETFs, which mirror aspects of the industry, could keep rising in price. If the Republicans win the White House in November, Congress could overturn the Obama health care plan, in which case these stocks would likely tumble.

Many investors trade the health-care sector using the ETF known as XLV, the Healthcare Select Sector SPDR. The average daily trading volume of XLV is much heavier than some of the funds mentioned below, and that means the fund is easier to buy and sell.

But some ETFs have performed quite well. For example, since Obama’s health care plan passed, the iShares DJ US Healthcare Providers (symbol: IHF) ETF has gained 24 percent in value, and 11 percent year to date, compared with the S&P 500, which has gained 20 percent and 12 percent respectively in the same periods, according to WallachBeth Capital, a brokerage firm specializing in ETF trading.

IHF consists of 77 percent health-care services stocks and 17 percent pharmaceutical stocks, but it is a smallish fund, with only $235 million in assets under management and an expense ratio of 0.47 percent.

Other health-care ETFs include PowerShares Dynamic Healthcare Sector (symbol: PTH), which is weighted roughly 25 percent in pharmaceutical stocks, 25 percent health-care products, 24 percent health-care services and 14 percent biotech companies. Year to date, the PTH fund is up 12 percent, in line with the stock market, and up 28 percent since the passage of Obama’s health care plan. But it’s an even tinier fund, with just $40 million and a higher expense ratio of 0.65 percent.

Of the health-care ETFs we’ve mentioned, XLV is the most liquid, but it has lagged the other funds. XLV is up 7.9 percent year to date and 16 percent since Obama’s health care plan was approved, but is cheaper with an 0.18 percent expense ratio. XLV may be easier to trade and less expensive, but other ETFs may reward you more.

Gold ETFs

There was a time when gold became unfashionable, rejected by mainstream investors and policymakers. That was after the period of Paul Volcker, the famously hawkish Federal Reserve chairman who tamed inflation in the 1980s with high interest rates and led investors to begin trusting central banks again to restore the soundness of money.

No longer. Increasingly, investors are moving back into gold as signs of inflation pressures pick up. And China’s central bank has become a large buyer of gold, says the Economist’s Matthew Bishop, who cowrote the new book In Gold We Trust? The Future of Money in an Age of Uncertainty (Kindle Single). “Any asset where the Chinese are buyers is probably one you want to be in,” he said.

We outline the main ETFs investing in physical bullion: Gold SPDR (GLD) is a popular ETF investing in physical gold, meaning that it will reflect changes in spot prices of the commodity. iShares COMEX Gold Trust (IAU) also invests in physical gold and is cheaper than GLD in terms of expense ratio. ETFS Physical Swiss Gold Shares (SGOL) invests in physical gold bullion stored in Switzerland.

Leveraged gold ETFs are those that double your bet (either up or down) using borrowed funds, and they can be quite volatile. They include PowerShares DB Gold Double Long ETN (DGP).

A number of ETFs provide exposure to gold indirectly through investments in discovery, extraction, and sale of the metal, such as the Gold Miners ETF (GDX).